BlueScope annual profit surges to $2.8bn, extends buyback
The steel major has defied Covid-19 disruptions to book record earnings, but has warned lower steel prices mean profits will soften this year.
BlueScope Steel boss Mark Vassella says Australia’s “dysfunctional” energy system risks future investment by manufacturers, as the Australian steel major declares a record profit on the back of a strong performance by its US operations.
BlueScope will pay a 25c a share unfranked dividend and extend its share buyback after booking a $2.81bn net profit for the year, buoyed by strong steel pricing.
The Australian steel major finished the financial year having booked $18.9bn in revenue, up almost 50 per cent from the previous year, with underlying earnings before interest, tax, depreciation and amortisation of $4.33bn, and EBIT of $3.85bn.
The company’s $2.81bn after tax profit was up 135 per cent from the previous year.
BlueScope’s record results were driven by its expanding US operations, with the company’s Northstar operations delivering $1.9bn in EBIT. Its core Australian steel business booked earnings of $1.3bn for the full year.
Mr Vassella told reporters on Monday that, although the company’s Australian operations had not been badly affected by the winter energy crisis on the east coast, the sharp spike in wholesale energy prices that forced intervention by the energy market operator earlier this year had hurt BlueScope’s customers and undermined confidence for future investment.
“In the US we operate in a highly competitive energy market with a mix of energy sources ranging from coal, gas, renewables and nuclear. We have certainty of supply and affordability. And with this market structure, we’ve had the confidence to invest more than $2bn expanding our US portfolio over the last two years,” he said.
“At home here in Australia. I’m far less confident about the investment environment because of the ongoing dysfunctionality of the domestic energy market.”
Mr Vassella said that BlueScope was still “voting with its chequebook” in Australia, and planning major investments in a relining of its Port Kembla smelter, as well as the announcement today it planned a $70m pipe and tube mill at the precinct.
But the BlueScope boss said the uncertainty around energy pricing made those investments far less certain than potential opportunities in the US, where energy costs are half the rates of BlueScope’s Australian operations.
“My concern is in a dysfunctional energy market, it becomes much more challenging around the returns on those projects,” he said.
“What I’m really worried about is the impact on our customers and industry more generally – those customers of ours that aren’t in the position where they’ve got contracts that protect them from these spikes. This is fundamentally undermining our competitiveness, and hollowing out manufacturing production processes, because of the spikes that we’re seeing.”
Mr Vassella said he was “encouraged” by early signs that the new federal government of Prime Minister Anthony Albanese is moving to establish long term energy policies around the transition to renewable energy sources, but said there was plenty of work still to be done.
“Australia needs an orderly energy transition that will ensure the sustainability of key national assets such as the Port Kembla steelworks, the 1000s of downstream companies in the building construction industry, and our broader customer base,” he said.
“I do believe this is fixable, and I’m hopeful that we might see some real progress following the comments and signals by both the ACCC and the new federal government.”
Mr Vassella said the company had finished June 30 in a net cash position of $367m and, after already having spent $638m buying back the company’s stock over the last year, had extended its buyback program by an additional $500m.
BlueScope also spent about $1bn on expanding its US operations through the year, through the $US220m acquisition of the MetalX scrap business in late 2021, and the $US717m buyout of Coal Coatings in June.
Mr Vassella said its 850,000 tonne a year expansion of its Northstar mill in the US was nearly complete, and the company was now considering further expansion of the operation which could potentially add another 500,000 tonnes of capacity in the US market.
BlueScope will pay a 25c a share final dividend. Although the payout is not franked, Mr Vassella said the tax payments due on the company’s full-year profit would allow it to again frank dividends this financial year.
The record results come despite the turmoil caused by supply chain issues and the impact of Covid-19, and rising labour and other input costs, with BlueScope dispatching more than 2.5 million tonnes of steel products in Australia through the financial year.
But BlueScope warned shareholders falling steel spreads meant it would not deliver similar profits in the current year, flagging likely first-half profits of $800m to $900m.
“As we looked at the start of the first half of the 2023 financial, we’re noticing some level of customer hesitancy impacting on demand across a number of our businesses caused by the combination of the falling price environment and temporarily high channel inventories,” he told reporters.
Mr Vassella said the hesitancy was largely caused by steel prices falling from “unsustainably” high levels of around $US2000 a tonne in the North American market, and that he did not believe it was the result of an economic slowdown spurred by rising inflation and interest rate hikes.
“It’s very typical for our customers, particularly in spaces like distribution or service centres where they’ll step back from the market because they don’t really want to be buying material with prices falling or get caught with high cost raw material,” he said.
“I think it’s too early for us to call a direct impact from interest rate increases – we’re not seeing that at this stage.”
BlueScope shares closed up 3.9 per cent, or 66c each at $17.55.
More Coverage
